Baucus Gives Away the Game: Medicare Cuts in Debt Limit Deal

Max Baucus, a participant in the now-stalled debt limit talks led by Joe Biden, told the Senate Finance Committee that the new “grand bargain” in the deal, what Eric Cantor balked at and left to John Boehner to authorize, is a swap of Medicare cuts for tax increases.

“I’m disappointed that Leader Cantor’s withdrawn,” said Senate Finance Committee Chairman Max Baucus during a hearing on health care spending. “I think we should stay at the table. I think we should keep working, difficult as it is, and try to balance between Medicare cuts — additional Medicare cuts — so long as there is commensurate additional revenue. We need balance here.”

Baucus made clear that the talks frayed over Democrats’ insistence that tax increases of some sort be part of the final deal.

“The largest deficit reduction measures in the post-World War II era both had significant revenue increases. About one-half the total amount of deficit reduction in each bill,” Baucus said. “I think we can raise revenues and have a positive economic outcome. Revenue increases in the 90s gave us 23 million new jobs. The longest economic expansion in U.S. history and a balanced budget.”

OK, so let’s parse this. Medicare cuts are apparently on the table in the deal. It seems that, in exchange for any additional Medicare cuts, revenue increases of commensurate value would be needed.

Now, there’s literally no connection between Medicare cuts and revenue increases (which could include the elimination of tax expenditures, presumably), just like there’s no connection between a dollar-value increase in the debt limit and spending cuts. These connections are all made for political reasons. Baucus can go back to his party and constituents and say, “Sure, we cut Medicare by $200 billion but we got $200 billion in new revenue.”
But who exactly cares about that relationship? Cutting Medicare by $200 billion is probably bad policy. I say probably because there are ways to “cut” $200 billion which would be quite good policy – like allowing Medicare to negotiate for lower prescription drug prices, for example, or changing the patent expiration for expensive biologic drugs, or moving dual eligibles into Medicaid at a cheaper rate (as long as the coverage is roughly equal). But I suspect that’s not what conservatives will agree to. At the same time, $200 billion in the closing of tax expenditures may or may not be good policy; it depends on what’s getting cut. Allowing a middle-class tax break to expire might be bad policy rather than canceling corporate welfare.

Not to mention the political fallout. After gaining the advantage thanks to the deeply unpopular Ryan budget, making a deal with Medicare cuts in it would completely abandon that advantage.

So the devil’s in the details here, but keep in mind that this is outside the other $1.5-$2 trillion in spending cuts that moves discretionary spending to an absurdly low baseline and makes spending cuts that the economy cannot sustain at this time. It’s possible that gimmickry will make these cuts appear larger than reality. But it’s just as possible that they are, in fact, real cuts. So we’re not talking about a balanced program of cuts and revenues, we’re only talking about balance on the ENTITLEMENT CUTS, and just one portion of them: Medicare. The total ratio could be as high as 90-10 spending to revenues, by these numbers.

It’s a horrible outcome. I for one am rooting for as much infighting among Republicans as possible to cancel out this bad deal. Of course, that puts us in a dangerous territory on the debt limit.

Baucus Gives Away the Game: Medicare Cuts in Debt Limit Deal

Max Baucus, a participant in the now-stalled debt limit talks led by Joe Biden, told the Senate Finance Committee that the new “grand bargain” in the deal, what Eric Cantor balked at and left to John Boehner to authorize, is a swap of Medicare cuts for tax increases.

“I’m disappointed that Leader Cantor’s withdrawn,” said Senate Finance Committee Chairman Max Baucus during a hearing on health care spending. “I think we should stay at the table. I think we should keep working, difficult as it is, and try to balance between Medicare cuts — additional Medicare cuts — so long as there is commensurate additional revenue. We need balance here.”

Baucus made clear that the talks frayed over Democrats’ insistence that tax increases of some sort be part of the final deal.

“The largest deficit reduction measures in the post-World War II era both had significant revenue increases. About one-half the total amount of deficit reduction in each bill,” Baucus said. “I think we can raise revenues and have a positive economic outcome. Revenue increases in the 90s gave us 23 million new jobs. The longest economic expansion in U.S. history and a balanced budget.”

OK, so let’s parse this. Medicare cuts are apparently on the table in the deal. It seems that, in exchange for any additional Medicare cuts, revenue increases of commensurate value would be needed.

Now, there’s literally no connection between Medicare cuts and revenue increases (which could include the elimination of tax expenditures, presumably), just like there’s no connection between a dollar-value increase in the debt limit and spending cuts. These connections are all made for political reasons. Baucus can go back to his party and constituents and say, “Sure, we cut Medicare by $200 billion but we got $200 billion in new revenue.”

But who exactly cares about that relationship? Cutting Medicare by $200 billion is probably bad policy. I say probably because there are ways to “cut” $200 billion which would be quite good policy – like allowing Medicare to negotiate for lower prescription drug prices, for example, or changing the patent expiration for expensive biologic drugs, or moving dual eligibles into Medicaid at a cheaper rate (as long as the coverage is roughly equal). But I suspect that’s not what conservatives will agree to. At the same time, $200 billion in the closing of tax expenditures may or may not be good policy; it depends on what’s getting cut. Allowing a middle-class tax break to expire might be bad policy rather than canceling corporate welfare.

Not to mention the political fallout. After gaining the advantage thanks to the deeply unpopular Ryan budget, making a deal with Medicare cuts in it would completely abandon that advantage.

So the devil’s in the details here, but keep in mind that this is outside the other $1.5-$2 trillion in spending cuts that moves discretionary spending to an absurdly low baseline and makes spending cuts that the economy cannot sustain at this time. It’s possible that gimmickry will make these cuts appear larger than reality. But it’s just as possible that they are, in fact, real cuts. So we’re not talking about a balanced program of cuts and revenues, we’re only talking about balance on the ENTITLEMENT CUTS, and just one portion of them: Medicare. The total ratio could be as high as 90-10 spending to revenues, by these numbers.

It’s a horrible outcome. I for one am rooting for as much infighting among Republicans as possible to cancel out this bad deal. Of course, that puts us in a dangerous territory on the debt limit.

UPDATE: More on this tomorrow, but it looks like we’re talking about provider cuts, which is better than I feared.